The chief content officer of Spotify Ken Parks in November 2014 was hit by a surprise when the record label Big Machine Records had made a request to Spotify to instant removal of the whole catalog of Taylor Swift from Spotify music streaming service. This meant that Spotify users would miss out her latest album 1989 and also other Taylor Swift’s music on Spotify (Elberse & Pfyffer, 2016). The decision to withdraw from Spotify made by Big Machine Records and Swift brought a big issue to the company since such an incident involving catalog takedown was a rare event. Initially, Big Machine Records had made a request earlier on to Spotify whether it would offer the new album for Swift was only accessible by just paid subscribers. It also requested whether the United States users were barred from accessing the new album. Spotify executives, however, turned down the two requests made by Big Machine Records. Due to this turndown, it is at this point that Swift and Big Machine Records decided to pull down Taylor Swift’s catalog on Spotify. This placed Spotify in a difficult situation. Parks was in a dilemma on whether they would allow artists to choose their geographical assortments and also will enable them to target only subscribe Spotify users (Elberse & Pfyffer, 2016). Parks was also worried that this takedown would make other artists consider defecting from Spotify service. The big question at hand was what efforts the executives would make to prevent other artists from leaving. Worries extended to how Spotify would respond in the public domain following this incidence (Elberse & Pfyffer, 2016). Eventually, Parks had no other option but to allow the catalog-takedown request since he had to stick to the company’s policies which do not allow artists to target only premium users and emphasizes on providing similar assortments across countries.
Spotify offers its services in two tiers; a monthly premium option and a free version. The monthly premium version requires a $9.99 for subscription whereby the users are granted unlimited use and access to Spotify content. While free version users are often interrupted with adverts when listening to music and limited to access full Spotify content. To differentiate itself even further and improve its efficiency, Spotify launch free mobile apps. Unlike other music streaming services, Spotify still let free users enjoy their services though slightly limited to little services (Elberse & Pfyffer, 2016). For instance, the free version of Spotify allows users to listen to music but restrict them from selecting individual songs they prefer listening to on their phones. Unsubscribed users can listen to their playlists right on their phone though not capable of choosing the types of songs and the order to play the songs from the playlist. In the free version, users are not able to download music so that they can listen to it during offline, whereas premium users are granted this vital feature to download music to listen during offline. Spotify differentiates itself from other music streaming services by providing two versions; free and premium versions in their service. In other music streaming services, they mostly offer one version. It can either be a completely free version or entirely premium version to access their services (Elberse & Pfyffer, 2016). Other music streaming services such as YouTube are offering completely free versions that require no subscriptions at all. Therefore, Spotify having two versions provide users with more options to choose on their convenience and how they would like to listen to music.
Spotify has three types of playlists which are essential to distinguish it from other music streaming services. Spotify has algorithmically generated personalized playlists accounting for seventeen percent of listening time. This kind of playlists leverages its data to customize content for every user as well as involve playlists such as Release Radar and also Discovery Weekly. Spotify curates content using playlists such as Fresh Finds as well as RapCaviar. Such playlists makeup 15% of the overall listening as well as offers a unique monetization chance for sponsored placing for artists and songs (Elberse & Pfyffer, 2016). Along with algorithmic playlists, Spotify programs about a third of all music listened on the service. The most significant competitive advantage for Spotify is its user-generated playlists. The entire playlists established and shared by its users’ amount to a third of the total listening hours. Most of this is probably individual playlists established by the user of favorite music, but more arise from popular third party playlist. In overall, playlists amount for over two-thirds of the total listening on Spotify (Elberse & Pfyffer, 2016). The company offers a unique advantage in establishing playlists in an algorithmic way and as a distribution podium for third-party playlists. When Apple launched Apple Music, users wanted curated playlists. However, Spotify proves that that is not the case. Even though there is a demand for curated playlists, people are also happy to listen to music that is algorithmically organized and even more happy listening to their own created playlists.
This company earns revenue in the form of subscriptions and advertising. Advertisers are granted to choose from various formats in both audio and video adverts. Every month, Spotify pays about 70% of its revenue to all rights holders (Elberse & Pfyffer, 2016). The revenue-sharing agreements are established in the form of licensing deals that are renegotiable after some years. Essentially, 70/30 split is the standard share terms whereby non-disclosure agreements bind all parties involved. Every right holder obtains a share of revenues which is proportional to the popularity of their artists on the platform. Spotify makes an average payout per stream between $0.006 and $0.008 (Elberse & Pfyffer, 2016). The exact payout to every artist depends on the royalty agreement of the artist with its label.
More listening means more data
Spotify has about 159 million active users worldwide on a monthly basis and average stream, about 11.5 billion hours of music. This scale of music streaming gives a distinct advantage for Spotify over its competitors. In comparison, Pandora only streams approximately five billion hours of content previously, and it is significantly declining. The data that Spotify gathers from its users assist in improving the experience of its users through improving search functionalities as well as content discovery (Elberse & Pfyffer, 2016). Although there is no significant difference from other music streaming services with substantial user bases. Furthermore, Spotify goes to the extent of using data in personalizing its user’s experience. Algorithms depend on the amassed user data for Spotify as well as the users’ data assist in surfacing the right content at the appropriate time depending on the time and user context. This level of personalization is harder to copy, but the scale of Spotify grants it a unique advantage.
By meeting these customer needs, it is beneficial to the advertisers, artists, as well as labels. This is because by meeting the customer needs, customers, to become contended and help in customer retention. As a result, content streaming will increase significantly, leading to increased profits for artists and labels (Elberse & Pfyffer, 2016). Meeting customer needs also will attract more users. This will create a wider audience for advertisers advertising their products on the platform. This will result in increased leads generated. Artists and labels would like their content to be streamed the most. Therefore, due to customer needs to be met, for instance, improving search functionality and content discovery makes it easy for customers to trace their preferred music, thus leading to increased music streamed. Increased number of music streams means higher profits to artists and labels.
I firmly believe that the executives did the right thing by insisting on not permitting their labels to differentiate their offering across countries and also focus only on premium users. First of all, the executive has acted ethically as expected of them. This is because it is well stipulated in the company’s policy that such acts are not permitted at all. Therefore, the rule of law has to be adhered to. Rules are meant to be followed, and that is what the executives have done. There was no other option since every party involved are tied to the policies that they signed up to. Upon signing a deal with Spotify, Swift and Big Machine Records had initially read Spotify’s policy and signed the agreement agreeing to this policy. Therefore, knowing that both parties are away from this policy and are bound to the policy, there was no other option but to turn down Big Machine Record’s requests. Turning down the request and insisting on sticking to the policy is to the best interest of the company. Suppose the executive permitted it, it would cause a lot of inconveniences that would disrupt, Spotify’s business model (Elberse & Pfyffer, 2016). Other artists and labels would have followed the same thing making the situation even worse. It will cause inconsistency in the music streaming platform. This would cause disparity and inequality in terms of the availability of content to Spotify users. Such disparity and inequality are disastrous as it causes deficiency, leaving some customer wants or needs unmet. Essentially, this would have affected the entire spotify management. Generally, customer satisfaction would have declined, thus harming Spotify’s reputation. This would make Spotify lose some of its customers and also lose its competitive advantage over its competitors. It would also have altered the unique features that make Spotify different from other music streaming services. Spotify would have lost its originality and unique features that make it stand out.
The executives made the right thing to serve the company from a great downfall. This was very important in protecting the business’ model. Accepting the changes would have even affected the way revenues were shared. Chance are high that this situation would have incurred Spotify a lot of loses. It would have also resulted in the elimination of the two-tier system used by Spotify (Elberse & Pfyffer, 2016). The free version and premium version would have been removed and only form a premium version. This was a strategy that differentiated Spotify from other music streaming services, and it was essential. Removing the free version would have significantly hurt the customers and would have incurred Spotify losing some customers. Therefore, it is a thumbs up for the executive for making the right decision to save the company from interference that would have cost the entire company.
The strategy that Spotify users by offering its free tier users a premium service for three months at $0.99 is a good deal in a long term perspective. Spotify is offering this deal to free tier users looking forward to a long term deal that would gain the company a lot of profit. Although this amount seems small, this is just a strategy to attract more customers and the existing free tier users to graduate to subscribe to the premium tier. Spotify strategically offers these premium services to free tier user at such a small amount with the aim of convincing and luring them to subscribe to premium tiers (Elberse & Pfyffer, 2016). Once they have subscribed to this premium tier at this low amount, they will be able to experience the convenience of the premium services. They will be able to get to use and enjoy additional features and functionalities that are not offered in the free tier. During these three months, they will be able to enjoy all these conveniences of the premium service. By the end of this period, they will have adapted and get used to premium services and they will feel awkward or reluctant to go back to be a free tier user whereby he or she will not get the opportunity of using the added features and functionalities offered to premium tier users (Elberse & Pfyffer, 2016). Therefore, this will push them to subscribe to the premium tier at the standard amount to continue enjoying the premium services. In the long run, Spotify will have benefited out of this strategy of the initial $0.99 pay to attract and lure free tier users into subscribing to the premium tier. The chances are high that these users who initially subscribed to premium services at $0.99 and after that period maintained their premium subscriptions at the standard price will continue as premium tier users for a longer time.
This is a long term strategy that is sound and effective, and I strongly think that this is quite a good deal, especially for Spotify, members, labels, advertisers, and artists. This strategy is beneficial to Spotify, members, labels, advertisers, and the artists as it is a long term strategy that is effective and focused on amassing more profits. The ones who will benefit the most out of this deal are the labels, artists, and Spotify. But generally, everyone involved will benefit out of it.
In response to Swift’s action in public domain, I think Spotify should disclose to the public that it is forced to terminate their contract with Swift and Big Machine Records due to Swift’s desires that are inconsistent with the organization’s policies. To protect its reputation and avoid raising eye brows from other labels, spotify should explain what happened and the cause of the disagreement that has resulted in the termination of their contract with Big Machine Records. Spotify should make it clear to the public that the incident has occurred due to the inconsistency with the policy. It should also highlight and pinpoint the policy in question to the public for reference (Elberse & Pfyffer, 2016). Moreover, Spotify has to explain the incident in a neutral way that does not seem to harm Swift and Big Machine Record’s reputation. I think this response should be published in various media, including print media, television, social media, and radio to announce the takedown requested by Swift. This announcement or notice is essential in notifying its users’ on what has happened so that when they fail to find Taylor Swift’s music on Spotify, they will not be disappointed and think that Spotify is bogus music streaming services that lack some contents especially the music of famous artists. If users fail to find Taylor Swift’s music on Spotify without knowing what transpired, they will be disappointed and will automatically conclude that Spotify is a shitty music streaming service that lacks fundamental content. This might lead to some users defecting to other music streaming services search as YouTube, where they can find all music content that they want. In this instance, customer need or wants will have been dissatisfied, and this can be very disastrous to the company’s performance (Elberse & Pfyffer, 2016). Therefore, in my opinion, I find it necessary to explain to the public what has transpired so that they will not be surprised to find Taylor Swift’s music. Public communication is very important. It helps in clearing the air, making things clear to the public, especially the users, to rubbish any rumors that may be going around the streets. It will also help to make it clear that Spotify did not chase Swift away but rather based on her own decision and her label, Big Machine Records. All in all, reputation is important, and every company has a duty to protect it. Therefore, disclosing the matter to the public is merely protecting the status of the company.